This article is the final in our 3 part series on the different ways people receive aged care in Australia and the timing is just right. For many people, amongst the stress of cooking, buying presents and visiting family and friends, this Christmas will be the worry of finding aged care in the new year for a loved one.
Many of us firmly announce that we have no intention of moving into an aged care facility: “An old people’s home? Not me!” More than one-third of men and one-half of women who reach the age of 65 are expected at some time to live in aged care. And often, when they take the time to investigate their options, they are pleasantly surprised.
Aged care accommodation costs
Significant reforms to the aged care industry occurred on 1 July 2014. These reforms changed the amount and way in which people can pay for their accommodation and the means testing arrangements for calculating their cost of care.
Let’s start with accommodation payments. Apologies for the jargon and abbreviations but anyone looking for aged care solutions has to get their head around them.
Aged care facilities publish the market price of their accommodation on their websites, in their marketing materials and on the government’s My Aged Care website. The published price takes two forms: the lump sum amount (known as a Refundable Accommodation Deposit or RAD) and the daily charge amount (known as a Daily Accommodation Payment or DAP). The resident can choose to pay for their cost of accommodation by RAD or DAP or in combination. This includes the ability to have the DAP deducted from the RAD. The DAP is simply calculated on the unpaid RAD amount at 6.63%.
For example, the facility may have a market price of $400,000 RAD or $72.66 per day DAP but the resident may choose to pay a combination of $250,000 by RAD and $27.25 per day by DAP. A resident can also choose to have their DAP deducted from their RAD. Where this is the case a recalculation occurs at the end of each month for a new DAP amount. Essentially it is a compound interest effect to cover the shortfall, not unlike a reverse mortgage. Aged care facilities set their own price up to $550,000, beyond this the price needs to be approved by the Aged Care Pricing Commissioner.
Contributing to the cost of care
When it comes to making a contribution towards your cost of care, there are three payments.
The first is paid by everyone and is known as the Basic Daily Fee. It is set at 85% of the Age Pension, currently $47.15 per day and contributes towards the cost of meals, laundry, utilities etc.
The second is the Means Tested Care Fee. This is an asset and income assessed fee, with the amount the resident contributes offsetting the government funding. For example, if a resident had a means tested care fee of $40 per day and the facility was due to receive $70 per day of funding for the resident, the facility would receive $30 per day from the government and a letter advising that the resident can afford to pay the other $40 as a means tested care fee.
The formula for determining the means tested care fee is:
50c per dollar of income above $25,118.60 (Single) $24,650.60 each (Couple) plus
17.5% of assets between $45,500 - $155,823.20 plus
1% of assets between $155,823.20 - $376,469.60 plus
2% of assets above $376,469.60
Minus $53.04 per day
What is considered assets and income?
Income is the same assessment as for pension; deeming on financial assets, taxable income on trusts and investment properties etc plus pension entitlement (note the pension supplement is not included)
Assets are the assessable assets for pension; bank accounts, car, contents, investment property etc plus up to $155,823.20 of the former home plus any amount paid to the aged care facility as a Refundable Accommodation Deposit (RAD)
The former home is exempt if a protected person is living there. A protected person is a spouse or dependent child or in other circumstances a carer or close relative.
Where the resident’s means tested amount is less than $53.04 per day they are classified as a ‘low means’ resident and the calculated amount is their Daily Accommodation Contribution. You can read more about Low Means Residents in our article here.
The third fee is the ‘extra service’ or ‘additional service’ fee. These fees relate to a higher standard of accommodation and lifestyle services or services that are being provided on a user pays basis.
For example, a resident who moves to an extra service bed, paying $15 per day as an extra service fee, will be receiving a higher standard of accommodation and also receives a choice of meals and a glass of beer or wine with dinner. The extra service fee ranges from around $15 per day to $140 per day and the standard of accommodation and services is commensurate with the price. Residents who choose to live in extra service accommodation cannot opt out of the extra service fee even if they no longer use some or all of the lifestyle services.
Additional services, on the other hand, are not linked to a higher standard of accommodation, they are simply lifestyle services provided on a user pays basis. For example, a resident may choose to receive the newspaper and a glass of wine with dinner and be charged $12 per day. If the resident no longer wishes to receive the services they can opt out, likewise, if they wish to receive more services they can opt in.
It’s not simple but it’s supposed to offer choice
People now have greater choice about the type of care they access and the way in which they pay for it. However, with choice comes the responsibility to make informed decisions. The way in which someone chooses to fund their care can have far-reaching implications from the cost of care itself, their eligibility for pension, their liability for tax, their ability to afford care in the longer term and the assets left to their estate. There is no substitute for specialist advice in this complex area.
Rachel Lane is the Principal of Aged Care Gurus and oversees a national network of financial advisers dedicated to providing quality advice to older Australians and their families. Read more about aged care facilities in the book “Aged Care, Who Cares; Where, How and How Much” by Rachel Lane and Noel Whittaker. This article is for general educational purposes and does not address anyone’s specific needs.